Yandex Announces Fourth Quarter and Full-Year 2011 Financial Results

MOSCOW and THE HAGUE, Netherlands, Feb. 22, 2012 (GLOBE NEWSWIRE) -- Yandex (Nasdaq:YNDX), the leading internet company in Russia operating the country's most popular search engine and most visited website, today announced its financial results for the fourth quarter and the full year ended December 31, 2011.

Net income margin of 28.8%Adjusted net income margin2 of 30.0%Adjustedex-TAC net income margin2 of 35.2%

"Yandex demonstrated strong traffic and revenue growth, capping off results for 2011 at the top end of our guidance range and building upon our clear leadership in the Russian search market," said Arkady Volozh, Chief Executive Officer of Yandex. "During the past year we continued to innovate and offer new services that make a difference in the lives of our users, including those in Turkey, our first market outside the CIS. This past year's significant investments in talent and infrastructure, along with our focus on the needs of users, position us well going forward. We will continue to develop a broad range of services that complement our core search platform, including maps and personal services on the desktop and on mobile platforms, emphasizing collaboration with our strategic partners."

The following table provides a summary of key financial results for the three months ended December 31, 2010 and 2011 and fiscal years 2010 and 2011:

In RUR millions

Three months
ended December 31,

Twelve months
ended December 31,

2010

2011

Change

2010

2011

Change

Revenues

4,125

6,439

56%

12,500

20,033

60%

Ex-TAC revenues2

3,618

5,437

50%

10,927

17,035

56%

Income from
operations

1,807

2,603

44%

4,823

7,034

46%

Adjusted EBITDA2

2,206

3,269

48%

6,164

9,237

50%

Net income

1,410

2,123

51%

3,817

5,773

51%

Adjusted net
income2

1,470

2,198

50%

3,968

6,003

51%

1 Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 32.1961 to $1.00, the official exchange rate quoted as of December 31, 2011 by the Central Bank of the Russian Federation.

2 This is a non-GAAP financial measure. Please see "Use of Non-GAAP Financial Measures" below for a discussion of how we define this non-GAAP financial measure. You will find a reconciliation of this non-GAAP financial measure to the most directly comparable US GAAP measure in the accompanying financial tables at the end of this release.

Q4 2011 Operational Highlights

Number of advertisers was more than 173,000, up 43% from Q4 2010 and up 10% from Q3 2011. For FY 2011, the number of advertisers increased by 44% to more than 270,000

Acquisition of the mobile business of SPB Software

Important partnerships in mobile: Yandex became the default search engine for the Windows Phone in Russia and on bada phones in the CIS

Built upon our launch in Turkey by adding a new map service that includes built-in traffic maps as well as panoramic street images of Istanbul and Ankara

Revenues

In RUR millions

Three months
ended December 31,

Twelve months
ended December 31,

2010

2011

Change

2010

2011

Change

Advertising revenues:

Text-based advertising

Yandex websites

3,079

4,405

43%

9,454

14,590

54%

Ad network

449

1,037

131%

1,506

2,922

94%

Total text-based advertising

3,528

5,442

54%

10,960

17,512

60%

Display advertising

501

864

72%

1,229

2,096

71%

Total advertising revenues

4,029

6,306

57%

12,189

19,608

61%

Online payment commissions

82

115

40%

263

383

46%

Other

14

18

29%

48

42

(13%)

Total revenues

4,125

6,439

56%

12,500

20,033

60%

Text-based advertising revenues, accounting for 85% of total revenues in Q4 2011, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 68% of total revenues during Q4 2011, and increased by 43% compared with Q4 2010. Text-based advertising revenues from our ad network increased 131% compared with Q4 2010 and contributed 16% of total revenues during Q4 2011. The enhanced performance of our Yandex ad network reflects the addition of Rambler to our ad network in mid-2011 as well as improved monetization from our contextual partner network sites due to improvements in our advertising technology.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 65% in Q4 2011 compared with Q4 2010, while the average cost per click decreased 7% during the same period as a result of our efforts to improve CTR (click through rate) on both our own sites and our ad network, make our platform more attractive to new advertisers primarily from the regions and increase the efficiency of our clients' advertising spend.

Yandex's operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, including related share-based compensation expense. Increases across all cost categories, excluding D&A, reflect investments in overall growth, including personnel. In Q4 2011, Yandex added 149 full-time employees, an increase of 5% from September 30, 2011, and up 39% from December 31, 2010. The total number of full-time employees was 3,312 as of December 31, 2011. Total share-based compensation expense increased 50% in Q4 2011.

Costs of revenues, including traffic acquisition costs (TAC)

In RUR millions

Three months
ended December 31,

Twelve months
ended December 31,

2010

2011

Change

2010

2011

Change

TAC:

Related to the Yandex ad network

277

665

140%

921

1,853

101%

Related to distribution partners

230

337

47%

652

1,145

76%

Total TAC

507

1,002

98%

1,573

2,998

91%

Total TAC as a % of total revenues

12.3%

15.6%

12.6%

15.0%

Other cost of revenues

288

483

68%

1,012

1,709

69%

Other cost of revenues as a % of revenues

7.0%

7.5%

8.1%

8.5%

Total cost of revenues

795

1,485

87%

2,585

4,707

82%

Total cost of revenues as a % of revenues

19.3%

23.1%

20.7%

23.5%

TAC increased from 14.4% of text-based revenues in Q4 2010 to 18.4% in Q4 2011, resulting primarily from growth in the percentage of our text-based revenues generated from our ad network for the period and, in turn, the growth in the share of those revenues paid to our ad network partners.

Other cost of revenues in Q4 2011 increased 68% compared with Q4 2010, reflecting principally an increase in datacenter-related costs and utilities, personnel expenses and content acquisition costs. The number of people employed in the departments allocated to costs of revenues increased 48%, from 219 as of December 31, 2010 to 325 as of December 31, 2011, with 6 employees added since September 30, 2011.

Product development

In RUR millions

Three months
ended December 31,

Twelve months
ended December 31,

2010

2011

Change

2010

2011

Change

Product development

594

853

44%

2,073

3,124

51%

As a % of revenues

14.4%

13.2%

16.6%

15.6%

The increase in product development expenses in Q4 2011 primarily reflects the increase in personnel-related expenses. Headcount in development staff increased 40% from 1,313 as of December 31, 2010, to 1,842 as of December 31, 2011, with 104 employees added since September 30, 2011.

Selling, general and administrative (SG&A)

In RUR millions

Three months
ended December 31,

Twelve months
ended December 31,

2010

2011

Change

2010

2011

Change

SG&A

586

916

56%

1,838

3,294

79%

As a % of revenues

14.2%

14.2%

14.7%

16.4%

The increase in SG&A in Q4 2011 was driven primarily by increased personnel-related costs as well as increased advertising and marketing expenses. Headcount in departments whose costs are allocated to SG&A increased 34%, from 853 as of December 31, 2010 to 1,145 as of December 31, 2011, with 39 employees added since September 30, 2011.

Share-based compensation (SBC) expense

SBC expense is included in each of the cost of revenues, product development and SG&A categories discussed above.

In RUR millions

Three months
ended December 31,

Twelve months
ended December 31,

2010

2011

Change

2010

2011

Change

SBC expense included in cost of revenues

5

7

40%

16

26

63%

SBC expense included in product development

29

42

45%

87

153

76%

SBC expense included in SG&A

22

35

59%

57

150

163%

Total SBC expense

56

84

50%

160

329

106%

As a % of revenues

1.4%

1.3%

1.3%

1.6%

Total SBC expense increased 50% in Q4 2011 compared with Q4 2010. The increase is primarily related to share-based compensation on options granted to employees in 2010 and 2011, which had fair values significantly higher than previous grants.

As a result of the factors described above, income from operations was RUR 2.6 billion ($80.8 million) in Q4 2011, a 44% increase from Q4 2010, while adjusted EBITDA reached RUR 3.3 billion ($101.5 million) in Q4 2011, up 48% from Q4 2010.

Interest income in Q4 2011 was RUR 105 million, up from RUR 46 million in Q4 2010. We derive a considerable portion of our interest income from ruble term deposits held in major Russian banks. Investments of our cash held in USD in the Netherlands in bank deposits, money market funds and debt securities generally yield considerably lower returns. Interest income increased principally due to investing more of our cash provided by operating activities in Russia, where our investments earn higher returns. Additionally, we earned significantly more interest income in the Netherlands due to the investment of our IPO proceeds.

Foreign exchange gain in Q4 2011 was RUR 6 million, compared to a foreign exchange loss of RUR 5 million in Q4 2010. Because the functional currency of Yandex's operating subsidiaries in Russia is the Russian ruble, changes in the ruble value of these subsidiaries' monetary assets and liabilities that are denominated in other currencies (primarily U.S. dollar-denominated cash, cash equivalents and term deposits maintained in Russia) due to exchange rate fluctuations are recognized as foreign exchange gains or losses in the income statement. Although the U.S. dollar value of Yandex's U.S. dollar-denominated cash, cash equivalents and term deposits was not impacted by these currency fluctuations, they resulted in upward and downward revaluations, respectively, of the ruble equivalent of these U.S dollar-denominated monetary assets in Q4 2011 and Q4 2010.

Income tax expense for Q4 2011 was RUR 573 million, up from RUR 441 million in Q4 2010. Our effective tax rate decreased from 23.8% in Q4 2010 to 21.3% in Q4 2011, primarily reflecting a change in our treasury policy following the IPO. In recent years, Yandex's principal Russian operating subsidiary had been paying dividends to its Netherlands parent company and incurred a 5% withholding tax in Russia when these dividends were paid. Under the new treasury policy, however, management does not currently expect the company's Russian operating subsidiary to pay dividends to the parent company out of 2011 earnings. Therefore, no accrual for dividend withholding tax was required for 2011.

Adjusted net income in Q4 2011 was RUR 2.2 billion ($68.2 million), a 50% increase from Q4 2010, broadly in line with the underlying operating results. It was positively impacted by a change in the effective income tax rate resulting from the elimination of the dividend withholding tax accrual. Adjusted net income margin was 34% in Q4 2011, compared to 36% in Q4 2010.

Net income was RUR 2.1 billion ($65.9 million) in Q4 2011, up 51% compared with Q4 2010. The higher growth in net income compared with adjusted net income was primarily the result of SBC expenses representing a smaller portion of other operating costs and expenses when comparing Q4 2011 to Q4 2010.

The totalnumber of shares issued and outstanding as of December 31, 2011 was 323,838,731, including 159,217,348 Class A shares, 164,621,382 Class B shares, and one Priority share and excluding Class C shares outstanding solely as a result of conversion of Class B shares into Class A shares; all such Class C shares will be cancelled. There were also options outstanding to purchase up to an additional 14.3 million shares, at a weighted average exercise price of $4.19 per share, of which options to purchase 9.8 million shares were fully vested; and equity-settled share appreciation rights equal to 0.8 million shares, at a weighted average measurement price of $20.80, none of which were vested.

Outlook for 2012

Yandex expects to report full-year ruble-based revenue growth of 40-45% for the full year 2012.

Conference Call Information

Yandex's management will hold an earnings conference call on February 22, 2012 at 9:00 AM U.S. Eastern Time (6:00 PM Moscow time; 2:00 PM London time).

To access the conference call live, please dial:

US: +1 631 510 7498

UK: +44 (0) 1452 555 566

Russia: 8 10 800 20972044

Passcode: 45285902#

A replay of the call will be available through February 29, 2012. To access the replay, please dial:

ABOUT YANDEX

Yandex (Nasdaq:YNDX) is the leading internet company in Russia, operating the country's most popular search engine and most visited website. Yandex also operates in Ukraine, Kazakhstan, Belarus and Turkey. Yandex's mission is to answer any question internet users may have.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These include statements regarding the planned growth of our business and our anticipated revenue for full-year 2012. Actual results may differ materially from the results predicted or implied by such statements, and our reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted or implied by such statements include, among others, competitive pressures, changes in advertising patterns, changes in the legal and regulatory environment, technological developments, unforeseen changes in our hiring patterns, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Prospectus dated May 24, 2011, which is on file with the Securities and Exchange Commission and is available on our investor relations website at http://company.yandex.com/investor_relations/sec_filing.xml and on the SEC website at www.sec.gov. Additional risk factor disclosure and related information will also be set forth in our Annual Report in Form 20-F for the year ended December 31, 2011. All information provided in this release and in the attachments is as of February 22, 2012, and Yandex undertakes no duty to update this information unless required by law.

USE OF NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with US GAAP, we present the following non-GAAP financial measures: ex-TAC revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted ex-TAC EBITDA margin, adjusted net income, adjusted net income margin and adjusted ex-TAC net income margin. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with US GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable US GAAP measures," included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows:

These non-GAAP financial measures are used by management for evaluating financial performance as well as decision-making. Management believes that these metrics reflect the organic, core operating performance of the company, and therefore are useful to analysts and investors in providing supplemental information that helps them understand, model and forecast the evolution of our operating business.

In particular, we believe that it may be useful for investors and analysts to review certain measures both in accordance with US GAAP and net of the effect of TAC, which we view as comparable to sales commissions but, unlike sales commissions, are not deducted from US GAAP revenues. By presenting revenue, adjusted EBITDA margin and adjusted net income margin net of TAC, we believe that investors and analysts are able to obtain a clearer picture of our business without the impact of the revenues we share with our partners. In addition, SBC is a significant expense item, and an important part of our compensation and incentive programs. However, as it is a non-cash charge, and highly dependent on our share price at the time of equity award grants, we believe that it is useful for investors and analysts to see certain financial measures excluding the impact of these charges in order to obtain a clear picture of our operating performance. Finally, as we hold significant assets in currencies other than our Russian ruble operating currency, and as foreign exchange fluctuations are outside of our operational control, we believe that it is useful to present adjusted net income and related margin measures excluding these effects, in order to provide greater clarity regarding our operating performance.

Although our management uses these measures for operational decision making and considers these non-GAAP financial measures to be useful for analysts and investors, we recognize that there are a number of limitations related to such measures. In particular, it should be noted that several of these measures exclude some costs, particularly share-based compensation, that are recurring. In addition, the components of the costs that we exclude in our calculation of the measures described above may differ from the components that our peer companies exclude when they report their results of operations.

The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use to the most directly comparable US GAAP financial measure.

YANDEX N.V.

Unaudited Consolidated Balance Sheets

(in millions of Russian rubles ("RUR") and U.S. dollars ("$"), except share and per share data)

Reconciliation of Adjusted EBITDA Margin and Adjusted Ex-TAC EBITDA Margin to US GAAP Net Income Margin for the Three Months and Twelve Months Ended December 31, 2011

In RUR millions

US
GAAP
Actual

Net
Income
Margin (1)

Adjustment
(2)

Adjusted
EBITDA

Adjusted
EBITDA
Margin (3)

Adjusted
Ex-TAC
EBITDA
Margin (4)

Three months ended December 31, 2011

Net income

2,123

33.0%

1,146

3,269

50.8%

60.1%

Twelve months ended December 31, 2011

Net income

5,773

28.8%

3,464

9,237

46.1%

54.2%

(1) Net income margin is defined as net income divided by total revenues.
(2) Adjusted to eliminate depreciation and amortization expense, SBC expense, interest income, other income/(expense), net, and provision for income taxes. For a reconciliation of adjusted EBITDA to net income, please see the table above.
(3) Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenues.
(4) Adjusted ex-TAC EBITDA margin is defined as adjusted EBITDA divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to US GAAP revenues, please see the table above.

Reconciliation of Adjusted Net Income Margin and Adjusted Ex-TAC Net Income Margin to US GAAP Net Income Margin for the Three Months and Twelve Months Ended December 31, 2011

In RUR millions

US
GAAP
Actual

Net
Income
Margin (1)

Adjustment
(2)

Adjusted
Net Income

Adjusted
Net
Income
Margin (3)

Adjusted
Ex-TAC
Net
Income
Margin (4)

Three months ended December 31, 2011

Net income

2,123

33.0%

75

2,198

34.1%

40.4%

Twelve months ended December 31, 2011

Net income

5,773

28.8%

230

6,003

30.0%

35.2%

(1) Net income margin is defined as net income divided by total revenues.
(2) Adjusted to eliminate SBC expense (as adjusted for the income tax reduction attributable to SBC expense) and foreign exchange losses (less foreign exchange gains) (as adjusted for the (reduction) increase in income tax attributable to the loss (gain)). For a reconciliation of adjusted net income to net income, please see the table above.
(3) Adjusted net income margin is defined as adjusted net income divided by total revenues.
(4) Adjusted ex-TAC net income margin is defined as adjusted net income divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to US GAAP revenues, please see the table above.&nbsp